Facebook CEO: Let’s Put This Mistake Behind Us

While a divided, 2-1 ruling by the Ninth U.S. Circuit Court of Appeals in San Francisco upheld Facebook’s (NASDAQ:FB) $9.5 million settlement of a class-action lawsuit Thursday, the dissenting opinion feared the settlement would be worthless for Facebook users.

Facebook’s Beacon advertising system, begun in November 2007, allowed information-sharing between the social network and 44 participating partners for the purpose of targeted advertisements. This meant that purchases made on external websites were published to a user’s News Feed and shared with his or her network of “friends.”

Complaints began almost instantaneously; within weeks Facebook made Beacon a voluntary program and discontinued the program entirely when the class-action suit was settled in a California federal court in 2009.

Facebook CEO, Mark Zuckerberg has since issued an apology, and admitted on his Facebook blog in November 2011 that Beacon was a mistake.

The suit, originally brought by 19 plaintiffs in August 2008, grew to cover 3.6 million Facebook users. In the court’s final decision, $39,000 was distributed among the original plaintiffs, $3 million was reserved for lawyer’s fees, and the remaining $6.5 million of the settlement went into a newly created foundation, the Digital Trust Foundation.

It was with the proposed foundation, that the class-action members found issue. The objectors, who were represented by the consumer-rights group Public Citizen, complained that one of the three executive directors, Timothy Sparapani, was also a Facebook executive and that the settlement was too small.

But upon the settlement’s appeal, the majority ruling of the Court of Appeals said that the $9.5 million settlement was fair and the appointment of Sparapani to the foundation’s board posed no conflict.

“A $9.5 million class recovery would be substantial under most circumstances, and we see nothing about this particular settlement that undermines the district court’s conclusion that it was substantial in this case,” wrote U.S. Circuit Judge Procter Hug Jr. in his majority ruling.

However in the dissenting opinion, written by U.S. Circuit Judge Andrew Kleinfeld, the settlement, “perverts the class action into a device for depriving victims of remedies for wrongs.”

According to a lawyer for the objectors, Greg Beck, the plaintiffs may appeal the ruling.